Question
AyayaiInc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors,
AyayaiInc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor's punch press is substantially identical and each has a useful life of20years. In addition, Engineering has estimated that required year-end maintenance costs will be $1,050per year for the first5years, $2,050per year for the next10years, and $3,050per year for the last5years. Following is each vendor's sales package. Vendor A:$55,180cash at time of delivery and10year-end payments of $17,350each. Vendor A offers all its customers the right to purchase at the time of sale a separate20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of $9,940.
Vendor B:Forty semiannual payments of $9,330each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next20years at no extra charge.
Vendor C:Full cash price of $150,600will be due upon delivery.
Assuming that both Vendors A and B will be able to perform the required year-end maintenance, thatAyayai's cost of funds is10%, and the machine will be purchased on January 1, compute the following:
The present value of the cash flows for vendor A.
The present value of the cash flows for vendor B.
The present value of the cash flows for vendor C.
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